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Indian Capital

Markets

Organized Indian Financial System

Regulators Financial Financial Financial
Instruments Markets Intermediaries

Forex Capital Money Credit
Market Market Market Market

Primary Market

Secondary Market

Money Market Capital Market
Instrument Instrument

Money Market Vs Capital Market

• It is for short term • It is for long term
• Supplies funds for WC • Supplies funds for fixed
capital requirement
• Instruments are T-bill,
CM, etc • Instruments are shares,
debentures, etc.
• Each single instrument
• Each single instrument
is of large amount
is of small amount
• Central bank and • Development bank and
Commercial banks are insurance companies
major. are major.

Conti..
• These instruments • These instruments
do not have have secondary
secondary market. market.
• Transactions are on • Transactions are at
over phone and no formal place. Eg
formal place stock market.
• Transaction without • Transaction have to
the help of broker. be conducted with
the help of broker.

.

• A side benefit of capital markets is that the transaction price provides a measure of the value of the asset. Why Capital Markets Exist • Capital markets facilitate the transfer of capital (i. • They provide liquidity. – Liquidity refers to how easily an asset can be transferred without loss of value. financial) assets from one owner to another. .e.

Role of Capital Markets • Mobilization of Savings & acceleration of Capital Formation • Promotion of Industrial Growth • Raising of long term Capital • Ready & Continuous Markets • Proper Channelisation of Funds • Provision of a variety of Services .

lowering settlement timings and . Functions of a capital market • Disseminate information efficiently • Enable quick valuation of financial instruments –both equity and debt • Provide insurance against market risk or price risk • Enable wider participation • Provide operational efficiency through -simplified transaction procedure .lowering transaction costs .

•Develop integration among -real sector and financial sector -equity and debt instruments -long term and short term funds -Private sector and government sector and -Domestic funds and external funds •Direct the flow of funds into efficient channels through -investment -disinvestment -reinvestment .

Factors contributing to growth of Indian Capital Market • Establishment of Development banks & Industrial financial institution. • Legislative measures • Growing public confidence • Increasing awareness of investment opportunities • Growth of underwriting business • Setting up of SEBI • Mutual Funds • Credit Rating Agencies .

High risks .Out cry method • Lack of Transparency .less than Rs. Indian Capital Market - Historical perspective • Stock Market was for a privileged few • Archaic systems .High tones costs • No use of Technology • Outdated banking system • Volumes . 300 cr per day • No settlement guarantee mechanism .

T+2 settlements in all stocks • 2003 . Indian Capital markets - Chronology • 1994-Equity Trading commences on NSE • 1995-All Trading goes Electronic • 1996.Globalisation • 2000.Major Stocks move to Rolling Sett • 2003.FIIs Participation.Demutualisation of Exchanges .over 80% trades in Demat form • 2001.Depository comes in to existence • 1999.

1992 / 2001 • Screen based Trading through NSE • Capital adequacy norms stipulated • Dematerialization of Shares . Capital Markets .Reforms • Each scam has brought in reforms .risks of fraudulent paper eliminated • Entry of Foreign Investors • Investor awareness programs • Rolling settlements • Inter-action between banking and exchanges .

• The corporate sector is increasingly depending on external sources for meeting its funding requirements. • A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks. . CAPITAL MARKET REFORMS IN INDIA • The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India.

electronic contracts • Margin Lending • Securities Lending . Reforms / Initiatives post 2000 • Corporatisation of exchange memberships • Banning of Badla / ALBM • Introduction of Derivative products .Index / Stock Futures & Options • Reforms/Changes in the margining system • STP .

96 Portfolio Managers • 83 Registrars & Transfer Agents. • 9108 Stock Brokers and 14582 Sub brokers • 9644 Listed Companies • 2 Depositories and 483 Depository Participants • 128 Merchant Bankers. • Over 10000 Electronic Terminals at over 400 locations all over India. 59 Underwriters • 34 Debenture Trustees. 2005) • 22 Stock Exchanges. 59 Bankers to Issue • 4 Credit Rating Agencies . MARKET STRUCTURE (JULY 31.

Indian Capital Market Market Instruments Intermediaries Regulator SEBI •Brokers •Investment Bankers Primary Secondary •Stock Exchanges •Underwriters Equity Hybrid Debt Players CRA Corporate Intermediaries Individual Banks/FI FDI /FII .

Stock Exchanges in INDIA • Mangalore Stock Exchange • Bombay Stock Exchange • Hyderabad Stock Exchange • Madhya Pradesh Stock • Uttar Pradesh Stock Exchange Exchange • Coimbatore Stock Exchange • Vadodara Stock Exchange • Cochin Stock Exchange • The Ahmedabad Stock • Bangalore Stock Exchange Exchange • Saurashtra Kutch Stock • Magadh Stock Exchange Exchange • Pune Stock Exchange • Gauhati Stock Exchange • National Stock Exchange • Bhubaneswar Stock • OTC Exchange of India Exchange • Calcutta Stock Exchange • Jaipur Stock Exchange • Inter-connected Stock • Delhi Stock Exchange Assoc Exchange (NEW) • Ludhiana Stock Exchange • Madras Stock Exchange .

) (5/2) Appreciated value 358 170 148 126 170 260 344 803 of Capital per 8 . (Cr. Capital of Listed 270 753 1812 2614 3973 9723 32041 59583 4 Cos. of 1125 1203 1599 1552 2265 4344 6229 8593 2 Listed Cos. Growth Pattern of the Indian Stock Market Sl. December No. Rs.) Market value of 971 1292 2675 3273 6750 25302 11027 47812 5 Capital of Listed 9 1 Cos.) Capital per 24 63 113 168 175 224 514 693 6 Listed Cos. (Lakh Rs.N As on 31st 1946 1961 1971 1975 1980 1985 1991 1995 o. of 7 7 8 8 9 14 20 22 1 Stock Exchanges No. (Cr. No.) Market Value of 86 107 167 211 298 582 1770 5564 Capital per Listed 7 Cos. of Stock 1506 2111 2838 3230 3697 6174 8967 11784 3 Issues of Listed Cos. Rs. (4/2) (Lakh Rs.

Primary Market • Market for new issues/fresh capital (IPO’s) • New issues mkt. • Participants issuer investors intermediaries .

Private placement . Right issues and . Prospectus . Mobilization of funds .

Free pricing regime • Before 1992. . • Timing. quantum .and pricing of the issue were decided by the controller • New co.Regulator of new issues was CCI (Controller of Capital Issues) • Approval from CCI for raising funds in primary mkt. promoter and merchant banker together decide the price of the issue.s can issue shares only at par • Existing companies with substantial reserves could issue shares at premium • Fixed price mechanism resulted in under pricing of many issues • After 1992.

Fixed price mechanism of new issue • CCI regime • To offer share at a fixed price • Firm and merchant banker decide an offer price • Investor opinion wasn’t considered while setting offer price • Long time lag among the date of pricing.and the date when trading commences • Raises possibility of price fluctuations in intervening period . the date the issue opens .

Book Building-A new issue mechanism in India • mechanism through which an offer price for IPOs based on investor’s demand is determined . • Auction of shares .

e. 3. Should mention opening and closing dates for the bids 5. merchant banker 2.Adv. Different price levels are invited from syndicate members . Issuer arrives at a final cut-off rate & final allocation in consultation with book runner and lead manager . Preparation and submission of draft documents to SEBI and obtaining of an acknowledgement card. Book building process 1. Appointment of book runner i. A specified price band (range) is to be determined by issuer and book runner 4.

6.Issuer and book runner may impose restrictions on number of shares that can be allotted to each client 7.Placement portion closes a day before the opening of public issue portion .Placement portion opens for subscription 9. Final prospectus is filed with the (ROC) along with procurement agreement 8. Contd…..

Public portion (net offer to the public) • 100% book building . Book building options • 75% book building Issue can be categorized into -placement portion .

of investors invited to apply are limited • Lack of transparency • Not proved to be good price discovery mechanism • Lag time of more than 60 days between issue pricing and listing • Issuer may have to sell cheap due to collective bargaining • High institution holding may affect stock’s liquidity • Volatility may increase due to bulk offloading . Limitations of book building method • No road shows done • Still dependent on good faith • No.

Distinction between Primary and Secondary Market • Functional differences • Organizational differences • Nature of contributions to industrial finance .

Secondary Market Secondary/Stock market!!!! .

• PAR VALUE vs. BEARISH .JARGON OF EQUITY MARKET: • SECURITY • BOND • STOCK 1)COMMON STOCKS 2)PREFERRED STOCKS • SHARE • MUTUAL FUNDS. MARKET VALUE • BULLISH vs.

How does the stock market function? •Stock exchanges •Brokers •Registrars •Depositories and their participants •Securities and Exchange Board of India (SEBI) Financial Regulators •SEBI •RBI •Ministry of finance .

The role of the stock exchange • Corporate governance • Creates investment opportunities for small investors • Government raises capital for development projects • Barometer of the economy .

• It regulates the stockbrokers and sub-brokers. • Checks Trading of securities. • It enhances investor's knowledge on market by providing education. • To promote Research and Investigation . • Checks the malpractices in securities market. Functions Of SEBI • Regulates Capital Market.

Functions Of RBI Monetary Authority: Issuer of currency: Regulator and supervisor of the financial system: Authority On Foreign Exchange: Developmental role: Related Functions: .

• News about the country. • Exchange rate regime. . • Depends on demand and supply for that stock. WHY STOCK PRICE RISES? The price of every stock increases or decreases for the following possible reasons: • News about company.

. •Structural and organisational imbalance in the growth of the stock market.DRAWBACKS OF INDIAN STOCK MARKET: •Unethical practices. •Big irrational greed. •Trading is extremely thin and restricted. excessive speculation. •Volatility of the market has increased over the years. •Lack of protection to interests of the genuine and small investors .

Best guess. Portfolio management. . Diversification . profound knowledge. HOW TO MAKE MONEY FROM CAITAL MARKET? patience.

Indian Capital Market deficiencies • Lack of transparency • Physical settlement • Variety of manipulative practices • Institutional deficiencies • Insider trading .